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Thursday, December 2, 2021

PPF vs NPS – Which is Better?

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If there is one thing all of us do, consciously or uncountably – say government jobs are better than private ones. Is that really true? I don’t think so, I will tell you why. Government jobs are known to be secure, with various benefits. And the most important one is the pension. We are all scared of the future, especially the one after we can no longer work. Most times, it is retirement, and sometimes it is mere incapability for various reasons. Still, fear cannot keep us from exploring and trying new jobs – perspectives have changed you see. So, what is one way we can withhold from being scared? Not working means financial instability, and that is the root of that fear. We all save in order to ease us of that fear because we know someday or another we would get there.

Recently, two options have been the most popular when it came to saving for this very cause, and they are the National Pension Scheme and the Public Provident Fund – the two long-term saving cum investment tools. Let us look into both of them and find out what is the best one for you.

What is PPF?

PPF, or Public Provident Fund, allows an individual to save a portion of his or her annual income to establish a retirement corpus while earning competitive interest on the deposited amount and receiving tax benefits. The PPF was created to encourage people to save, particularly those who do not belong to an Employee Provident Fund Organization EPFO. Individuals who invest in a PPF account get interested in the capital amount and can claim tax deductions of up to Rs. 1.5 lakh under section 80C of the Income Tax Act.

What is NPS?

The National Pension Scheme is a Central Government social security scheme. Except for members of the military services, this pension program is open to employees from the public, private, and even unorganized sectors. The program encourages employees to invest in a pension account at regular intervals throughout their employment. After retirement, subscribers can withdraw a portion of the corpus. If you have an NPS account, you will get the remaining amount as a monthly pension after you retire.

Previously, the NPS scheme only applied to Central Government employees. However, the PFRDA has now made it available to all Indian people on a voluntary basis.

How are these two schemes different from each other, you may be wondering. Here are the differences between the both of them so you can understand better.

Difference Between NPS and PPF

– Both, Indian citizens and NRIs are allowed to open an NPS account, whereas only Indian citizens are allowed to open a PPF account and login into a UAN portal.

– When you want to open an NPS account, you can be anywhere from 18 years to 60 years. But in the case of PPF, even minors can open this account, and there is not much restriction when it comes to age.

– The rate of interest for the NPS scheme is 10.00% to 12.00% and can vary according to the situation of the market. The interest rate for the PPF scheme is 8.60% and is fixed.

– When you open an NPS account, you need to deposit Rs.6,000, but there is no maximum limit. In the PPF Scheme, the least you can deposit is Rs.500, and the highest is Rs.1 lakh.

– The Tax on the contributions made is deductible from the entire income, and the PPF scheme is wholly tax-free.

– NPS matures after the age of 60 or 70, and PPF matures only on retirement.

– When it comes to premature withdrawal and NPS, you can only take 20% before maturity, but partial withdrawal can be availed after 7 years in PPF.

– PPF is much safer than NPS as the interest rates in that scheme do not fluctuate.

– The returns of NPS are much higher than PPF.

– In the PPF, you can choose how you invest your money, but the same does not happen for NPS – you need to follow a certain protocol.

– In PPF, you do not need to buy an annuity, but in NPS, you need to buy an annuity at maturity that is worth 40% of the corpus unless the matured amount is less than 2 lakhs.

Which Scheme Should You Choose?

What is the best scheme? Both of them are the best in their own ways. Now I know that sounds too old school, but it is true. Because both schemes do have their drawbacks, you would have understood from the differences mentioned above. But here is a brief suitability check.

Who Should Invest in PPF?

  • PPF is a scheme for people who still have 15 years left until their retirement, and that is the time you reap more from the scheme.
  • With PPF, you will not be open to any kind of taxes, which means you will be taking home how much ever you have earned on your investment.
  • You are also open to premature withdrawal but only after 7 years, so if you are someone who would not need that money any time soon.
  • If you cannot take risks and are looking forward to a stable return, PPF has a fixed interest rate.
  • If you are looking for flexible payments.

Who Should Invest in NPS?

  • NPS is for people who are okay with market fluctuations and have a slightly bigger appetite for risk.
  • If you are above 18 and below 60.
  • If you want higher returns and are ready to take up a bit of a risk.
  • If you would not need the money in the near future.
  • If you are not looking for flexible payments.

Conclusion

Now that you know about the two. You can know which of the two schemes are meant for You. It is much easier to analyze the better option for yourself. Firstly, you need to know your own financial stand and what you would be able to invest in.

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